Stocks declined Monday as investors have begun to realize that, despite the government bailout, there's more pain to come.
The bailout "will have an impact on what is happening in the markets, but eventually it will not stop banks from realizing their losses," Marino Valensise, CIO of Barings, told CNBC, adding that they would have to sell assets at discounted prices.
The biggest news today is that the last two pillars on Wall Street — Goldman Sachs and Morgan Stanley — are being converted into commercial bank-holding companies instead of stand-alone investment banks. The two banks will now be able to create commercial banks, but will be subject to tighter regulation.
Goldman shares rose 4 percent. Morgan Stanley shot up 15 percent after Japan's largest bank, Mitsubishi UFJ Financial Group, said today that it plans to buy a 10 to 20 percent stakein the firm.
Morgan Stanley had been in talks to merge with Wachovia but sources close to the deal say these latest developments put any such deal on the back burner — possibly forever.
Meanwhile, Japanese brokerage house Nomura Holdings reached a deal to buy the Asian operations of Lehman Brothers, . UK bank Barclays has already snapped up the core US business held by Lehman.
The New York Stock Exchange announced Monday plans to add 30 more stocks to the short-selling ban list, including CNBC parent General Electric , CIT Group , Legg Mason and American Express . (See a list of the 30 stocks added and the original 799.)
The short-selling ban didn't appear to help banks. Washington Mutual tumbled 20 percent, while Wachovia and Wells Fargo were off about 10 percent.
JPMorgan also shed about 10 percent.
The Bush administration and Congress stepped up talks on a $700 billion-plus bailout plan, which will give the Treasury powers to buy toxic assets. Congressional Democrats want to add provisions to include aid for homeowners. The plan could ultimately wind up costing $1.8 trillion.
While the financials continued to flail, a trio of cash-rich firms -- Microsoft , Hewlett-Packard and Nike -- launched stock buybacks and dividend increases.
Investors will be watching other cash-saturated companies such as Apple , Google and Research In Motion to see if they are willing to share the love, too.
THE WEEK AHEAD:
MONDAY: Fed's Fisher speaks
TUESDAY: Richmond Fed manuf. report; Earnings from Lennar
WEDNESDAY: Bank Reserve Settlement; Fed's Bernanke and Lacker speak; weekly mortgage applications; existing-home sales; weekly oil inventories; Earnings from Bed, Bath & Beyond and Nike
THURSDAY: Paulson testifies; Chicago, Dallas Fed presidents speak; jobless claims; durable goods; new home sales; natural-gas inventories; Kansas City Fed manuf. report; Earnings from Discover, Rite Aid and Research In Motion
FRIDAY: St. Louis Fed pres. speaks; Last look at Q2 GDP, corporate profits; consumer sentiment; Earnings from KBHome
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